Greece says closing gap on austerity plan with troika

Greece's Prime Minister Antonis Samaras (L) shakes hands with European Central Bank (ECB) President Mario Draghi as he arrives at the ECB headquarters in Frankfurt September 11, 2012. REUTERS/Alex Domanski

ATHENS (Reuters) - Greece has secured the blessing of its lenders on an additional chunk of spending cuts in a nearly 12-billion-euro austerity plan, a senior government official said on Wednesday, bringing the crisis-hit country closer to a deal on the package.

Prime Minister Antonis Samaras’s government has been wrangling for weeks over the package, both internally and with the troika of European Union, European Central Bank and International Monetary Fund lenders. It must be approved before Athens can hope to get further aid under its latest bailout.

The lenders initially rejected measures worth over 4 billion euros in the 11.7 billion euro package, but have since given the green light to cuts totaling 9.5 billion euros, the official told reporters.

“The talks are continuing, the gap has narrowed,” the official said, without specifying the latest measures the two sides had agreed on. “We are at 9.5 billion euros now.”

Greek officials have previously said the lenders were unhappy over timid plans penciled in to fire civil servants - a politically sensitive issue in a country where the constitution bars such layoffs.

Samaras’s leftist allies - who are due to meet on Thursday for a new round of discussions over the cuts - are fiercely opposed to axing workers in the public sector, though they have signaled they will eventually sign up to the broader package.

The unpopular plan also includes a new round of wage and pension cuts as well as reductions in disability and other welfare benefits that are expected to bring Greeks out onto the streets in the coming days to protest.

Unions have already begun a series of work stoppages and marches in central Athens ahead of a general strike next week.

But with the country facing bankruptcy without further aid, Greece’s government has promised to plough ahead with the cuts. Officials say they hope for a final agreement on the package by Sunday.

KEY IMPORTANCE

After that, attention is expected to turn to a report that troika officials are preparing on the country’s progress in meeting the terms of its bailout, which will determine whether Athens gets funds that it hopes will inject life into its failing economy.

“About 90 percent of it will come to Greece and will be made available for the recapitalization of banks, improving liquidity and covering outstanding debts to the greatest extent possible.”

Athens is also hoping a positive review will allow it to be given more time to hit debt targets under its bailout, even though EU officials have privately acknowledged that the country is way off target on its commitments.

Greece argues it needs two more years because of a deeper than expected recession, which Staikouras predicted will trigger an economic contraction of between 6 and 7 percent this year.

Unemployment, already at nearly a quarter of the workforce, would also top previous estimates, he said.

Still, fears that Greece could be kicked out of the euro zone have receded in recent weeks as the euro zone focuses on avoiding any scenarios that could derail efforts to shore up bigger economies like Spain and Italy.